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Chief executive Peter Voser said: 'Our industry continues to see significant energy price volatility as a result of economic and political developments.

'Shell is implementing a long-term, consistent strategy against this volatile backdrop. Our plans for organic capital investment of around $32billion in 2012 and medium-term financial and production growth are on track.'

Shell lost out last week to much smaller state-owned Thai company PTT in a race to buy Cove Energy, a purchase that would have added gas reserves for future liquefied natural gas (LNG) production.

Yesterday it announced exploration deals with two China state oil firms to look for oil and develop gas in China and also to explore in Gabon.

Shell's stock was down 91p at 2,174 this morning.

View from the City

'A drop in earnings had been expected, but not to this extent as evidenced by the share price fall in early trade,' said Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers.

'At a time when investors are looking towards blue chip reliability, the disappointment contained in the headline figures is palpable.

'Nonetheless, on a longer term view, there still seems much to go for. The company is extremely cash generative, allowing a further repurchase of shares and the ability to maintain an attractive dividend payment (currently yielding 4.7 per cent), alongside future investment in new projects.'

Helal Miah, investment research analyst at broker The Share Centre, said: 'Despite the earnings shortfall due to factors out of the company’s control, we still recommend Royal Dutch Shell "B" [the firm's B shares] as a "buy" to represent a core holding in an investor’s portfolio.

'The company provides attractive yields and exposure to the energy market. It is hungry to find more resources and the projects it is undertaking should ensure it is well positioned to make the most of energy price rises, if the global economy manages to show some decent growth.'

Stock trend: Shell shares have struggled to make progress over the past year